Many Americans reach their sixties, fall in love with a vacation destination, and begin wondering whether they could actually retire there. Cabo San Lucas is often near the top of the list, but answering the question requires looking beyond the resorts and running the numbers. Here is what it would take for a 67- and 64-year-old couple, with a paid-off Arizona home worth $475,000, retirement savings of $780,000, and $52,000 in combined Social Security, to make this work.
Vacation Cabo Versus Retirement Cabo
A week in Cabo is not the same as living there year-round. Retirement means hurricane season, summer heat and humidity, utility bills, property taxes, and routine errands conducted in Spanish. Healthcare is generally good, but some specialized care may still require travel to larger Mexican cities or the United States. Social life changes as well. Many of the people met during a vacation are fellow visitors who leave after a few days. None of this makes Cabo a bad retirement destination. It simply means the budget and lifestyle plan must reflect everyday life rather than a week spent at a resort.
Complexities of Buying Property
Buying property in Cabo is more complicated than many Americans expect. Foreigners purchasing in Mexico’s coastal zone generally buy through a fideicomiso, a renewable bank trust that grants the buyer the practical rights of ownership. Setup and annual trust fees add modest ongoing costs.
A turnkey two-bedroom condo in a desirable area of Cabo typically runs $400,000 to $550,000, with closing costs adding another 6% to 8%. Property taxes are low by U.S. standards, often under $1,000 per year. The larger expense is usually the HOA. Gated communities with security, pools, and hurricane reserves commonly charge $500 to $900 per month, while coastal insurance can add another $1,500 to $2,500 annually.
A Realistic Annual Budget in U.S. Dollars
Pricing in dollars at the current 17.28 peso exchange rate, a comfortable but not extravagant year looks like this:
- Housing carry (HOA, predial, fideicomiso fee, insurance, repairs, utilities with AC): about $18,000
- Healthcare for two, including private Mexican coverage plus out of pocket: about $12,000
- Groceries and dining out several times a week: about $15,000
- One vehicle, gas, Mexican auto insurance: about $5,500
- Four round trips back to the U.S. for family and medical: about $7,000
- Entertainment, fishing charters, marina life, guests: about $7,500
- Taxes on U.S. withdrawals, reserves, miscellaneous: about $10,000
That totals roughly $75,000 a year. Social Security covers $52,000, leaving a portfolio gap of about $23,000 annually in today’s dollars.
Does the Portfolio Carry It
Selling the Arizona home nets roughly $445,000 after costs. A $475,000 condo purchase consumes the home equity plus about $30,000 from savings, leaving a working portfolio near $750,000. At a 3.5% withdrawal rate appropriate for a 64 year old planning to age 95, that portfolio supports about $26,000 a year of sustainable spending, which clears the $23,000 gap with a thin cushion. With the 10 year Treasury at 4.49% and CPI inflation near the Fed’s 2% target, a balanced portfolio of index funds, dividend ETFs, and a short Treasury ladder can realistically deliver this. The math works. It does not work with a $550,000 condo, a second car, or a club membership.
The Medicare Problem
Healthcare is one of the most important retirement considerations in Cabo. Medicare generally does not cover routine care outside the United States, so most retirees maintain a combination of U.S. and Mexican coverage. For this couple, the prudent approach is to keep Medicare Part A and Part B active while carrying private Mexican or expatriate insurance for care in Mexico. Many retirees also plan to return to the United States for major procedures or specialized treatment. That dual-track system is already reflected in the healthcare budget. It may seem expensive, but cutting coverage can create far larger costs later if a serious medical issue arises.
The Verdict
This couple can afford to retire in Cabo, but only with a disciplined plan: a reasonably priced condo, a clear understanding of HOA and trust costs, a healthcare strategy that preserves Medicare, and withdrawals kept near 3.5% of their portfolio.
The smartest move may be to rent for a year before buying. Living through hurricane season, summer heat, and the realities of everyday life provides a far better test than any vacation. If they still love Cabo after a full year, the numbers work and the move makes sense. If not, they will have learned that lesson without selling the Arizona house or committing hundreds of thousands of dollars to a property purchase.
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